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Market Transparency and Competition Policy in Imperfectly Competitive Markets

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paniz
21 diapositives · 401 Views · Jul 31, 2014

This presentation by Peter Møllgaard at the ENCORE workshop delves into the complexities of market transparency and its impact on competition within imperfectly competitive markets. It explores both price transparency and characteristics transparency, addressing their direct and indirect effects on market behavior. The discussion includes the sustainability of full and partial collusion under different conditions and concludes with policy implications for maintaining competitiveness in the market. Key insights emphasize the delicate balance between information transparency and market dynamics.

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  1. Market Transparency and Competition Policy in Imperfectly Competitive Markets Peter Møllgaard Copenhagen Business School Presentation at ENCORE workshop, June 5, 2003

  2. Outline • Generalities • Price transparency – Direct effect • Characteristics transparency – Indirect • Policy conclusions Market Transparency and Competition Policy

  3. Outline • Generalities • Transparency • Full collusion • Partial collusion • Price transparency – Direct effect • Characteristics transparency – Indirect • Policy conclusions Market Transparency and Competition Policy

  4. 1. Generalities: Transparency • Transparency – a buzzword • Two kinds of transparency • Price transparency : easy comparison of prices • Characteristics transparency: comparison of qualities (horisontal product differentiation). • Two effects: • Direct: how imminent is detection? • Indirect: how severe is punishment? Market Transparency and Competition Policy

  5. 1. Generalities: Full collusion • Full collusion sustainable by Nash triggers: • Proposition: Market Transparency and Competition Policy

  6. 1. Generalities: Partial collusion • Maximal price • Sustainable by Nash trigger strategy • Increasing in iscount factor • U-shaped in measure of product differentiation •  Market Transparency and Competition Policy

  7. 1. Generalities: Partial collusion Market Transparency and Competition Policy

  8. Outline • Generalities • Price transparency – Direct effect • Detection: lag and uncertainty • A Concrete Case • Characteristics transparency – Indirect • Policy conclusions Market Transparency and Competition Policy

  9. 2. Price transparencyFull collusion • Detection lag : ´() > 0 • Later punishment makes collusion more difficult. • Uncertain detection: Prob(detect) =  • ´() < 0 • Higher risk of being detected prevents cheating. Market Transparency and Competition Policy

  10. 2. Price transparencyPartial collusion  = .7  = .5; .6; .7 Market Transparency and Competition Policy

  11. 2. Price transparencyPartial collusion 0.5  = .53  = .9; .95; .958401 0.4 Price 0.3 0.2 0 0.2 0.4 0.6 0.8 1 Probability of detection Market Transparency and Competition Policy

  12. 2. Price Transparency: A Concrete Case • Ready mixed concrete in Århus • DCA made public prices and secret discounts • Input prices stable • Low capacity utilization Market Transparency and Competition Policy

  13. Outline • Generalities • Price transparency – Direct effect • Characteristics transparency – Indirect • Comparability of products • The indirect effect at play • Policy conclusions Market Transparency and Competition Policy

  14. 3. Characteristics transparency • Measure of transparency (). • Ease of comparability of product characteristics. • T´() > 0 • D´()>0 • Which effect dominates? • Proposition from before! Market Transparency and Competition Policy

  15. 3. Characteristics transparency • When transparency is low, improved transparency makes full collusion more difficult • ´() > 0 when  [0,0.77) • Temptation is more elastic than deterrence. • When transparency is high, improved transparency makes full collusion easier • ´() < 0 when   (0.77,1). Market Transparency and Competition Policy

  16. 3. Characteristics transparency • Extentions: • Abreu optimal symmetric punishments. • Full transparency is always optimal. • More firms: • Optimal degree of transparency is increasing in number of firms • Four are few, six are many Market Transparency and Competition Policy

  17. Outline • Generalities • Price transparency – Direct effect • Characteristics transparency – Indirect • Policy conclusions • Transparency packages • IT and internet Market Transparency and Competition Policy

  18. 4. Policy conclusions:Transparency packages • Maximal sustainable price • Function of • Lag () and uncertainty () [translate into ] • Characteristics transparency () • If  is low: • Max price will increase with price transparency but decrease with characteristics transparency • If  is already high, • Max price will increase with both!!! Market Transparency and Competition Policy

  19. 4. Policy conclusions:IT and WWW • Info may be encoded, encrypted etc. • Makes detection of collusion more difficult. • Industry chat rooms! • Automata! • Quick price response = clear and present danger. Market Transparency and Competition Policy

  20. 4. Policy conclusions:IT and WWW • It is not the information as such, it is how it is used that matters. • Study who owns and organizes the site ! • but beware of undercover agents. Market Transparency and Competition Policy

  21. FINE Market Transparency and Competition Policy